Scotland and the British Fiscal State, 1707 - 1800

As the Scottish independence referendum approaches, the WCTA’s Tax History group took a topical look on 11 February at “Scotland and the British Fiscal State, 1707-1800”. The speaker was Julian Hoppit, Astor Professor of History at University College, London, who presented the results of his research in the archives of Scottish revenue officials (including Adam Smith) for much of the first century after the Act of Union in 1707.

When the Union treaty was negotiated, the per capita burden of taxation in England and Wales was ten times that of Scotland, and Scotland’s share of the combined revenues of the two former nations was just 2%. Although the Scots were not expected to contribute to the existing national debt, and were excused immediate payment of the same rates of customs and excise duties (whisky being a notable exception), the rates were expected to converge within seven years. In fact, although absolute revenues from Scotland grew substantially over the next century, even by its end Scotland was paying much less than her share of the British population would warrant: the latter remained at roughly 15%, whereas in 1707 the Scots had paid about 3% of all excise receipts, and even by the late 1790s this had risen to only 6%.

Much of the revenue raised in Scotland also stayed there, partly to pay for the separate legal and church systems: by 1800, management costs absorbed some 25% of the indirect tax take in England and Wales, whereas in Scotland the percentage was 41 (down from a huge 96 at the Union).  Progress towards a common fiscal system was thus extremely slow, and proposals to extend the malt duty to Scotland almost derailed the Union only six years after it had begun and caused riots 15 years later.  It clearly suited the Jacobites especially to attack the fiscal effects of the Union, and evasion in the form of smuggling was prevalent even among the upper classes.

After the failure of the 1745 rebellion the London government purged 44 Jacobite officials from the Edinburgh tax administration, and many English commentators decried what they saw as the lax and costly state of Scottish tax collection.  Scottish intellectuals such as David Hume and Adam Smith, however, saw dangers in the fact that the national debt had quadrupled since 1707, most of it held by creditors in London: as Hume put it, “national debts cause a mighty confluence of people and riches to the capital, by the great sums, levied in the provinces to pay the interest”. By 1776, Adam Smith  wrote that the system of funding debt by taxation had enfeebled every state that had adopted it.

In fact, towards the end of the century the Scots economy strengthened, and with it the tax take –Scottish excise revenues grew from £200,000 in 1780 to nearly £1 million by 1800. Net tax remittances to London also increased markedly, this period coinciding with Adam Smith’s career as a member of the Customs Board.  But what came out clearly from Professor Hoppit’s figures was not so much the low proportion of national revenues contributed from Scotland, as the dominance of London and the south east of England over the rest of the Kingdom: by 1796, the two latter regions contributed over £5 per head of gross excise collected, compared to just over £4 per head for the whole of the rest of England, Wales and Scotland combined. With its scattered population, poor communications and harsh agricultural conditions, Scotland was inevitably less productive in tax terms than England and Wales, and each Scots excise officer in 1750 was responsible for nearly 43,000 acres compared to less than 10,000 for each of his English colleagues.

By the end of the century the work of Adam Smith and others had begun to bring home to London politicians, such as the younger Pitt, the truth that onerous taxation in places such as Scotland,  in support of ever-increasing public debt,  simply led to evasion, even by the supposedly respectable,  and that the economy could no longer depend simply on customs and excise duties. Scotland and Scottish thinkers had thus made a major contribution to the national taxation scene as their country became an integral part of the British fiscal state. Professor Hoppit left us with the thought that anyone trying to reverse that process today would face enormous problems.

David Williams

February 2014

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Scotland and the British Fiscal State, 1707 - 1800